Jan. 11 (Bloomberg) -- Soybeans jumped to a record, corn reached an 11-year high and wheat rallied after U.S. government reports showed that production is failing to keep pace with rising global demand for food and biofuels.

The world soybean harvest will fall 6.5 percent this year, U.S. corn inventories will be 20 percent less than estimated a month ago, and wheat farmers in Kansas and Texas planted less even as the price of the grain doubled, the Department of Agriculture said in separate reports today.

Tighter supplies will boost the cost of feed for hog processor Smithfield Foods Inc. and poultry producer Pilgrim's Pride Corp. General Mills Inc., the second-biggest U.S. cereal- maker, said today it raised the price of Pillsbury refrigerated dough to offset higher wheat costs. Globally, food prices have doubled on average in the past five years, UN data show.

``We can't grow our way out of this grain-shortage hole,'' said Jim Gerlach, president of A/C Trading Inc. in Fowler, Indiana. ``We'll have to price our way out. I'm bullish until further notice. We'll see ups and downs, but the trend will remain higher.''

The U.S. is the world's biggest producer and exporter of corn and soybeans, and exports more wheat than any other nation.

Soybean futures for March delivery rose 38.5 cents, or 3.1 percent, to $12.9875 a bushel on the Chicago Board of Trade, after earlier reaching a record $13.1025. The last record was in 1973. Futures gained 78 percent last year, after U.S. farmers planted the fewest acres in 12 years and sowed the most corn since 1944.

Lower Production

World soybean production will fall to 220.34 million metric tons, or 0.6 percent less than forecast in December, the USDA said today in a report. World inventories of the oilseed on Sept. 30 will be 25 percent lower than a year earlier, at 46.24 million tons, the USDA said.

``We need more production because of rising world demand,'' said Bill Nelson, a vice president for A.G. Edwards Inc. in St. Louis. ``Barring a global recession, I don't think demand will slow'' at current prices, Nelson said.

Soybean oil, used to make cooking ingredients and biodiesel, also reached a record in Chicago, and soybean meal used as animal feed touched the highest price since June 1973.

Soybeans also are rallying because gains in the price of corn make the grain more profitable for growing in the Midwest, analysts said.

``The soybean market can hardly ignore the very bullish developments in corn,'' Nelson said. ``We need more of both crops.''

Corn Rallies

Corn futures for March delivery rose the Chicago exchange's 20-cent daily limit, or 4.2 percent, at $4.95 a bushel, the highest for a most-active contract since June 1996. Prices have surged 44 percent in the past three months, even after the U.S. harvested a record crop.

Corn supplies on Aug. 31 will total 1.438 billion bushels, down from 1.797 billion forecast in December, the USDA said. The department also cut its estimate of the record 2007 harvest by 0.7 percent and said corn use in the first quarter of the marketing year rose 15 percent.

``We had a heck of an increase in domestic use in livestock feed and ethanol production,'' A.G. Edwards' Nelson said. ``This is a stellar report.''

Soybeans followed corn prices higher last year even when U.S. and global inventories rose to the highest level ever. This year, both corn and soybean reserves are falling, increasing the competition for acres, analysts said.

Lower Inventories

The reserves of corn before the next harvest represent 11.1 percent of consumption, down from 14.2 percent forecast last month and 11.6 percent last year, USDA data show. Soybean inventories as a percentage of consumption will fall to 5.9 percent this year from 18.7 percent last year, the USDA said.

``The battle for grain acres is just starting to heat up for the year,'' Credit Suisse Group analyst Robert Moskow said in a note to investors today. ``A precarious situation gets more precarious.''

The USDA estimated world corn output in the year that began Oct. 1 at 766.7 million metric tons, down from a forecast of 769.3 million in December. That compares with an estimated 703.9 million harvested last season. Global consumption will rise to 772.7 million from 766.4 million forecast last month and 721.7 million last year, the department said.

``Prices must go high enough to seriously ration usage,'' said Jeff Beal, a market consultant for Strategic Marketing Services Inc. in Rockford, Illinois. ``$3 didn't do it; $3.50 didn't do it; $4 didn't do it; $4.50 didn't do it.''

Wheat Surges

Wheat jumped 3 percent after a U.S. government report showed the country's farmers increased plantings of the winter crop by less than half of analysts' estimates.

Growers sowed 46.61 million acres of winter wheat from September through November, up 3.6 percent from a year earlier, the USDA said. Analysts surveyed by Bloomberg expected a 7.8 percent gain, after prices doubled during the past year to a record. Planting fell in Kansas and Texas, the top wheat-growing states, with total hard-red wheat varieties declining 1 percent.

``I'm truly shocked that we couldn't even match last year's hard-red winter number with these prices,'' said Mike Zuzolo, the chief market analyst at Risk Management Commodities in Lafayette, Indiana. ``I've got to think that world buyers like Pakistan are going to now'' increase purchases, he said.

Wheat futures for March delivery rose 26.75 cents to $9.0925 a bushel in Chicago, after earlier the exchange's 30- cent limit to $9.125. Futures have nearly doubled in the past year, reaching a record $10.095 on Dec. 17. Before today, the price had declined 13 percent since then on expectations for a bigger crop from increased plantings.

Fewer Acres

Hard-red winter wheat, used to make bread and cereals and grown mostly in the U.S. southern Great Plains, was seeded on 32.5 million acres, down 1 percent from 2007, the government said. In Kansas, farmers sowed 9.9 million acres, a 4.8 percent drop from the prior year, the USDA report said.

``Some people were wondering if the acreage was as big as advertised,'' said Jason Britt, an analyst at Central States Commodities Inc. in Kansas City, Missouri, before the report was released.

About 6 million acres were planted with wheat in Texas, the second-biggest U.S. producer, down 3.2 percent from the prior year, the government said.

Crop Rotations

``The dry fall limited planted acres in some parts of the region,'' the USDA said in today's report, released in Washington. ``Normal crop rotations also reduced seedings in some states in the region, following the large winter wheat crop planted last year.''

Growers will rotate crops, or not seed wheat in fields where they planted the grain the prior year, because skipping a season allows diseases and pests to die off. Instead some fields are left fallow, or unplanted.

Corn is the biggest U.S. crop, valued at a record $33.8 billion in 2006 with soybeans in second place at $19.7 billion, government figures show. Wheat is the fourth-biggest crop, behind hay, with a value of $7.7 billion.

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net ; Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net .

Last Updated: January 11, 2008 15:20 EST

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